Aidi — Figma Acquisition
Today, we'll discuss Figma's acquisition and examine if more African startups should consider Mergers and Acquisitions. We will also consider the setup of 5G labs in Kenya and what this means for businesses in Cote d'Ivoire and finally, what we have been up to at Aidi.
1. The Figma Acquisition- Should more African startups consider Mergers and Acquisitions?
Figma announced its acquisition by Adobe for $10 billion on September 15th, 2022. Of course, there were several ‘takes’, concerns and reactions following the announcement. However, this caused me to think about the nature of mergers and acquisitions in the African tech ecosystem; if there are benefits to M&A and if this should be encouraged in our ecosystem. Recall that Stripe also acquired Paystack for an undisclosed sum in 2020, causing a stir and the rise of the debate on the right time to sell a technology-enabled business, particularly in Africa.
For the purpose of this review, I’ll refer to Mergers and Acquisitions as M&A. In an article written by the African Development Bank Group, M&As in Africa are driven by these 4 motivations- economic growth and investment climate, the energy, mining and utilities sectors and the emerging partners/ non-resources driven industries. There was a 15% increase in M&A value between 2000 to 2015 and a 21% decrease between 2015 and 2019. Moreso, most of the mergers and acquisitions in the region are prominent in the oil and gas sector as well as the telecoms sector in Africa and recently, the technology industry, particularly in the financial services space with a 64% year-on-year increase from 2015-2019. 54% of these deals are cross-border and 54% involve firms operating in the same sector. In spite of this improvement, Africa’s slice of the global M&A market is relatively small (only about 2% of the $3.1 trillion global M&A market as of 2019) due to uncertainties and economic volatility in the region.
South Africa takes the lead in the M&A in the continent with Egypt and Nigeria taking 2nd and third places. Most mergers and acquisitions in South Africa have been attributed to the understanding of business practices by most South African firms, the investment culture in Africa and the availability of funding from equity and credit markets.
According to Techcrunch, M&A is particularly beneficial for startups that struggle to scale operationally because they essentially buy cash flow, revenue and other companies’ traffic, meaning startups grab a bigger share of their markets. They’re also a good way for startups to find, consolidate and experiment with their value proposition. With this in mind, you may be wondering- how can startups prepare for this and when exactly, is the right time to make this move? In the words of Steven. R. Covey- Begin with the end in mind. The structure of your company from the get-go will determine the value that will be attached to it during this process. Build a strong, valuable startup from the ground up that will bring value to both the seller and acquirer. This is the first step in preparing for a merger or acquisition. Yes, you might not establish a business for this purpose in the first place but is important to build the right structure for your business from the beginning. A startup with lopsided structures will certainly not be valued highly when the time for acquisitions or mergers comes.
Why should startups consider a merger or acquisition? First, M&A allows companies to more effectively compete in markets that have large players. In markets like these, it takes large companies to establish and maintain a competitive edge in marketing, production and innovation and without M&A, startups will be at the risk of failing and this will reduce competition. Therefore, M&A can help mitigate this. Mergers and acquisitions also give room for internal or organic growth ((e.g. hiring additional salespeople, developing new products, and expanding geographically, which in fact is a very time and strength consuming option) and inorganic growth (e.g. acquisition of or a merger with another firm, often done to gain access to a new product line, customer segment, or geography). Just like internal investments, M&A provides the means for companies to increase their capital base.
Secondly, M&A makes the economy more efficient and productive, reducing inflationary pressures. With less inflation, price signals become clearer and resource allocation improves throughout the economy. And with less inflation, any given level of income and wages will generate more real demand for final goods and services, which will generate more demand for labour, which in turn creates more income. Real GDP will benefit from this virtuous disinflation cycle.
Thirdly, mergers provide synergy and access to intangible assets. For M&A, this is the ability of a corporate combination to be more profitable than the individual parts of the firms that were combined. Intangible assets include human capital, which is the sum of all the capabilities of everyone who’s currently working in a company, i.e., the cumulative knowledge, experience, attributes, competencies, and mindsets of all employees, managers, and leaders. These individual capabilities of employees create value for the customers. Also, customer capital is made up of the strategies, structures, processes, and leadership that translate into a company’s specific core competencies. These organizational capabilities leverage employees’ individual capabilities to create value for customers.
Conclusively, more African startups should consider mergers and acquisitions, seeing their effects on business outcomes and on the economy.
2. Orange opens 5G lab
Orange Cote d’Ivoire has opened up a 5G lab for startups, digital professionals and businesses. The 5G network is expected to be available in the country next year, but Orange is taking proactive steps by providing businesses with a collaborative space that is fully equipped and dedicated to practical applications. The free lab is built around 2 concepts- To allow economic players to discover possibilities around 5G and how it can make their activities better and, to support innovative businesses to experiment with how 5G can accelerate their product or service. The site will host a 5G demo space for varying different sectors, co-working spaces, co-innovation and practical 5G application sessions.
Please see their website for more information on the 5G Lab and its projects.
3. Other news we’re reading
4. Inside Aidi
For the past 2 months, we paused community membership. This was done to ensure that only a select few become members. This is because, we know the value everyone currently in the space offers and so, we are more careful in ensuring that everyone who joins brings value to the community generally and to everyone who makes up the community. In light of this, we launched an accelerator program for every member for the following reasons:
- To ensure that all members (old and new) get the needed resources they need to build strong, global, sustainable businesses
- To support all existing businesses; giving you an opportunity to meet and speak to all portfolio founders, meet and pitch to all our angels and give you access to our services at a very discounted rate with 24/7 support
- To make sure that community membership is given only to interested, valuable founders
The program will begin on the 5th of October 2022. Follow our social media handles for weekly updates.
- Startups in the Agritech & Supply chain, IoT & Connectivity, Machine learning and Cybersecurity industry are encouraged to apply for the ASIP accelerator program. Benefits include a €15000 investment in each startup. See more details on the website
- The Agribusiness challenge designed to support agriculture-based startups with innovation has opened up applications to help startups in Oyo State, scale. Apply here